As November 3rd rapidly approaches, America is watching as incumbent Republican President Donald Trump takes on Democratic hopeful and former Vice President Joe Biden.
Through debates and rallies alike, the US public is trying to determine where each candidate stands on the issues that most matter to them. Here, we will review what each candidate’s stances are when it comes to retirement.
Donald Trump on Retirement
President Trump has made his stance and priorities on retirement evident from the beginning of his presidential term. For starters, he has stayed clear on the importance of Social Security for the American public.
President Trump has always been careful to note how his possible changes to payroll taxes—which are slightly up in the air—would not affect Social Security payouts. Social Security is viewed by experts as critical since any changes could impact the lives of millions of American people nearing or already in retirement.
However, President Trump did sign an executive order two years ago that introduced some critical changes to retirement security, including:
- Increasing the age for Required Minimum Distributions (RMDs) for both traditional Individual Retirement Accounts (IRAs) and 401(k)s from 70 ½ years to something higher, reflecting the longer lives that Americans are living—and as the Treasury Department documented in recent life expectancy tables. Investment management experts at BlackRock actually recommended 75 years as the prime cut-off after which RMDs should be required. If people can delay taking money out of their retirement accounts, they can let their savings accumulate more.
- Create more opportunities for small businesses to offer retirement plans. The SECURE ACT of 2019, which he signed into law in December of that year, was a major step in effecting this. The SECURE Act made it mandatory for employers to allow part-time employees to contribute to 401(k) accounts in preparation for retirement. These employees must have rendered 500 hours of work in a year for the past three years to qualify. However, because these employees are part-time, employers are not required to make joint contributions to each part time employee’s 401(k) account.
- Allow multiple employers to contribute to an employee’s retirement plan, which is another change that the SECURE Act brought about. Termed in legal language as a “pooled employer plan,” neither the employers nor the employee is required to file individual Form 5500s as required by the Employee Retirement Income Security Act. Instead, all participants in the plan can file a single Form 5500.
Before the pandemic struck, Congress and the Trump administration worked on what has been called the “sidecar” savings accounts, which help Americans leverage after-tax money to build emergency savings. This was in direct response to the 29% of Americans who have taken out some sort of early withdrawal from their retirement savings, and the 75% who noted interest in an employer-based emergency savings program.
After they are comfortable with how much emergency savings they have built, these employees can direct future payroll deductions straight into retirement savings account
Earlier this year, Trump also issued a memorandum to the Department of the Treasury, allowing employers to defer the withdrawal of Social Security taxes from employee payrolls; this is very clearly noted as a deferral, and not forgiveness. This memorandum is effective from this month to the end of this year.
Finally, the President announced mid-September 2020 that the government will issue Medicare cards to senior-aged individuals across the country that are worth $200. These cards are intended to help seniors offset the costs of maintenance drugs. Trump indicated that roughly 33 million Americans will be recipients of the cash cards.
Joe Biden on Retirement
So far, former Vice President Biden has outlined a few steps he would take regarding retirement security if he were to assume office.
- Equalize taxes – First, Biden’s campaign website states that his administration will equalize the tax breaks system that people enjoy through their retirement savings. The Biden Plan aims to provide the deferred tax benefits of 401(k) retirement savings accounts to low and middle-income employees. A flat tax credit would reduce an individual’s tax liability without reducing their taxable income.
- Automatic 401(k)s – The Biden Plan also wants to carry on with the “automatic 401(k)” initially tackled by the Obama-Biden administration and building on President Trumps’ SECURE Act. Specifically, Biden wants to extend tax benefits for small businesses to start retirement plans for their employees. The program will also provide a means for low and middle-income earners to save money for retirement. More details are needed to clarify this plan further.
- Caregiver catch-up contributions – Joe Biden also proposes providing means for caregivers to establish retirement savings for themselves and their future. Currently, caregivers are prohibited from making contributions to retirement accounts as they are de facto freelancers. Trying to make such contributions often exposes them to penalties, which the Biden Plan wants to compensate for by allowing them to make catch-up contributions when they return to the workforce.
Biden also wants to put Social Security on the path to long-term solvency and resolve the Social Security crisis, at least in part by increasing taxes on higher-income tax brackets by a few percentage points.
With funds expected to be depleted by 2035, Biden proposes equalizing Social Security tax payments imposed on all income earners in the country. This means requiring people in the upper-level income echelons to pay the same amount of taxes imposed on low and middle-income individuals. Again, this changes their tax liability but does not affect their adjusted gross income; meaning, this can save them money without being a “loophole” to change brackets—and taxation rates.
The Biden Plan also wants to provide older Americans with higher retirement benefits from Social Security. In addition, it promises to provide a minimum benefit above the poverty level that members can receive upon reaching retirement age. For Medicare, the Biden Plan intends to remove a law that stops Medicare from using its power to negotiate beneficial prices for prescription drugs with their manufacturers.
To further ensure affordable prices, Biden wants to regulate launch prices for medicines that face no competition on the market. He also wants to put a cap on price hikes pharmaceutical companies are allowed to impose on their products due to inflation.
Seeking to enable Americans to save money on prescription drugs, Biden wants to allow citizens to import prescription drugs online from other countries if prices are lower. These drugs, however, will have to be certified as safe by the U.S. Department of Health and Human Services.
Finally, Joe Biden wants to lower the enrollment age for Medicare from 65 years old to 60 years old. This move alone could introduce about 20 million new beneficiaries into the federal program.
American voters are working to discern who should get their vote as they cast their ballots.
Trump has the machinery in place and the access to legislative and executive capability to make true on what he is promising. It’s important to look at his track record in his first term as President, as it is the only indication we have that he has the Congressional clout and political willpower to execute his promises for a second term.
Similarly, it’s imperative to look at former Vice President Joe Biden’s track record in executing policy with President Barack Obama. Has he worked effectively with both Houses of Congress? Is there Congressional support for the legislation that he is promising at this stage of the elections?
Every American should take time to balance each individual candidate’s platform and discern what each candidate’s ultimate goal is with respect to the American people. We highlighted some of their key points on retirement here, but we do not endorse either candidate.
The task is yours to research as to who really is the end beneficiary of each promise made by both President Trump and Vice President Joe Biden during the election campaign. More importantly, don’t forget to cast your vote. Vote wisely.